Standard & Poor's on Friday cut its rating on Qantas to a BB+ from an investment-grade BBB-, a day after the airline warned of a pretax loss for the six months through December of up to 300 million Australian dollars (US$272 million). Separately, Moody's Investors Service put its investment-grade rating on Qantas on review for a possible downgrade.

S&P slashed its rating on Qantas even as the airline pledged to slash costs by A$2 billion over the next three years,
in part by axing another 1,000 jobs. "A structural shift in the domestic competitive landscape has weakened Qantas's business risk profile," S&P said, noting it doesn't expect the airline to recover its investment-grade rating in the near term.

Still, Qantas is on a relatively stable footing from a balance sheet perspective. In recent years, it sold a freight business and canceled or deferred aircraft deliveries to boost its capital position. As of June 30, the company had A$2.83 billion in cash and undrawn loan facilities worth A$630 million.

Responding to the downgrade on Friday, Qantas said it "retains a strong financial position, including a large cash balance and a significant asset base."

A spokesman for the airline, however, acknowledged that the downgrade is "expected to increase the cost of some company debt," without elaborating. Qantas shares fell as much as 4% immediately after the downgrade was announced, extending Thursday's 11% decline.

Flight Path

Qantas Shares Fall

ALL1YYTD3m1m1w1d1h5M

Instrument:

From:
to:
frequency:

1.03

Daily change

-3.74%

-0.040

December 6 20135:20 PM local

Source: WSJ Market Data Group

Qantas Chief Executive
Alan Joyce
on Thursday flagged the possibility of asset sales to "potentially unlock sources of capital and value for shareholders" who have suffered from a consistently weak share price performance since the financial crisis hit late in 2007. Qantas shares are down more than 80% from where they were in November 2007, while Australia's benchmark S&P/ASX 200 index is only about 20% off its precrisis highs.

Selling off stakes in the Jetstar ventures could be complex, given the different partners in each joint venture and their reliance on the Jetstar name, Mr. Mitchell said. Analysts have also speculated that Qantas could consider floating Jetstar as a separately listed company.

In the most recent fiscal year ending June, Qantas logged A$260 million in profit before interest and tax from the frequent-flier program—the only part of the business that increased earnings on year. Meanwhile, Jetstar booked A$138 million in earnings before interest and tax.